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Distribution 2
 

Distribution 2

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distribution1

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    Distribution 2 Distribution 2 Presentation Transcript

    • Chapter 9
      • Marketing Channels
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Learning Objectives
      • Understand channel structure and how channels manage discrepancies
      • Understand concept of channel flows
      • Relationship of channel flows to service levels
      • Understand channel formats and levels
      • Understand what channel systems are expected to deliver
      • Prominent marketing and channel systems
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Channel Functions
      • Information gathering
      • Consumer motivation
      • Bargaining with suppliers
      • Placing orders
      • Financing
      • Inventory management
      • Risk bearing
      • After sales support
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Role of Intermediaries SDM- Ch 9 Tata McGraw Hill Publishing Company 1 Company 2 Company 3 Intermediary Large number of CONSUMERS Direct and Indirect….
    • Direct Distribution
      • Company to consumers or retailers without use of intermediaries. Also includes reaching Institutional buyers .
      • Selling on the Internet
      • If products are technically complex , this system is preferred
      • Cost is a major consideration to adopt this mode
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Direct Distribution - Examples
      • Banking services
      • Credit cards
      • Petrol / diesel – company own outlets
      • Land line phone connections
      • Health services
      • Utilities – electricity, water
      • Subsidized ration
      • Education
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Indirect Distribution
      • Goods may move through a set of intermediaries
        • Most FMCG companies follow this route
      • The intermediary has a far better reach than the company
      • The cost of operations of an intermediary like a wholesaler / retailer is shared with many businesses.
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Indirect Distribution - Examples
      • All FMCG, consumer durables and pharmaceutical
      • Petrol / diesel / cooking gas - franchisees
      • Insurance
      • Mobile phones
      • All kinds of passenger transport
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Marketing Channel Systems
      • Vertical :
        • Corporate
        • Administered
        • Contractual
      • Horizontal
      • Multi-channel
      SDM- Ch 9 Tata McGraw Hill Publishing Vertical….
    • Vertical Marketing System
      • Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts
      • Improves operating efficiency and marketing effectiveness
      • 3 types:
        • Corporate
        • Administered
        • Contractual
      SDM- Ch 9 Tata McGraw Hill Publishing Corporate…
    • Corporate VMS
      • Combines successive stages of production and distribution under single ownership
      • Examples :
        • Bata, Bombay Dyeing, Raymond
        • Sears, Goodyear
        • Suppliers of food items could be also their own supplying firms - like Nilgiris
      SDM- Ch 9 Tata McGraw Hill Publishing Administered…
    • Administered VMS
      • Co-ordinates distribution activities
      • Gains market power by dominating a channel
      • Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL in certain locations
        • Command high level of co-operation in shelf space, displays, pricing policies and promotion strategies
      SDM- Ch 9 Tata McGraw Hill Publishing Contractual…
    • Contractual VMS
      • Independent producers, wholesalers and retailers operate on a contract
      • Could take the forms of:
        • Wholesaler sponsored voluntary chains
        • Retailer co-operatives
        • Manufacturer sponsored retail or wholesale franchise
        • Franchise organizations
        • Service firm sponsored retail franchise
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Horizontal Marketing Systems
      • Two or more unrelated companies join together to pool resources and exploit an emerging market opportunity
        • In-store banking in hotels, big stores
        • Retail outlets in petrol bunks
        • Coffee Day outlets in airports
      SDM- Ch 9 Tata McGraw Hill Publishing Multi-channel…
    • Multi-channel Distribution
      • Company uses different channels to reach / same or different market segments
        • Most FMCG companies have separate networks for retail market and institutions
        • Pharma companies may use different channels to reach doctors, chemists and hospitals
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Multi-channel Distribution
      • Used in situations where :
        • Same product but different market segments
        • Unrelated products in same market – detergents and ice creams (HLL)
        • Size of buyers varies
        • Geographic concentration of potential consumers varies
        • Reach is difficult
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Distribution Channels
      • Take care of the following ‘discrepancies’
        • Spatial
        • Temporal
        • Breaking bulk
        • Assortment and
        • Financial support
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Spatial Discrepancy
      • The channel system helps reduce the ‘distance’ between the producer and the consumer of his products.
        • Consumers are scattered
        • Have to be reached cost effectively
      • Example : companies produce products in one location even for global needs
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Temporal Discrepancy
      • The channel system helps in speeding up in meeting the requirement of the consumers
        • Time when the product is made and when it is consumed is different
        • Limited number of production points but hundreds of consumers
      • Maruti plant in Gurgaon – cars and spares are available when the consumer wants
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Breaking Bulk
      • The channel system reduces large quantities into consumer acceptable lot sizes
        • Production has to be in large quantities to benefit from economies of scale
        • Consumption is necessarily in small lot sizes
      • India is the ultimate example in breaking bulk – you can buy one cigarette, one Anacin, one toffee etc
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Need for Assortment
      • The channel system helps aggregate a range of products for the benefit of the consumer – it could be made by one company or several of them.
        • For the same product, it could be a variety of brands and pack sizes
      • MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire range.
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Financial Support
      • The channel system provides critical working capital to its customers by extending credit.
      • Some channel members like stockists and wholesalers finance the business of their customers.
        • Medical diagnostic equipment to hospitals
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Channel Flows
      • Forward flow – company to its customers – goods and services
      • Backward flow – customers to the company – payment for the goods. Returned goods.
      • Flows both ways - information
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Three Flows Recognized SDM- Ch 9 Tata McGraw Hill Publishing FORWARD BOTH WAYS BACKWARD Goods and Services Information Payment for goods / returns Company Customers
    • The Five Channel Flows
      • Physical flow of goods
      • Title flow of goods (negotiation, ownership and risk sharing also)
      • Payment flows (financing and payment)
      • Information flow (about goods, orders placed and orders executed)
      • Promotion flows
      SDM- Ch 9 Tata McGraw Hill Publishing Who is responsible?
    • Channel Flows
      • Some channel member/s have to perform them
      • There is a cost associated with each flow
      • If a channel member is discontinued, the flow has to be performed by another
      • All flows and transactions can be effective only with timely, accurate and correct information
      • The channel flow is ideally to be handled by the most competent channel member who can deliver best service at the lowest cost.
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Degree of Involvement SDM- Ch 9 Tata McGraw Hill Publishing Channel formats… Manufacturer C&FA or Distribution Center Distributor, dealers Wholesaler or retailer Physical Title / ownership Information Risk sharing Promotions Physical Title Information Payment Order processing Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions
    • Channel Formats
      • Is decided by who ‘drives’ the channel system:
        • Producer driven
        • Seller driven
        • Service driven
        • Others
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Producer Driven
      • This is the effort of the manufacturer to reach the product to his consumers. Examples:
        • Company owned retail outlets – petrol, Bata, Reliance mobiles
        • Licensed outlets – KMF
        • Consignment selling agents
        • Franchisees
        • Brokers
        • Vending machines
        • Company contracted distributors
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Seller Driven
      • Use of existing channels to reach the largest number of end users
        • Existing wholesalers and retailers
        • Modern retail formats
        • Specialty stores – Shoppers’ Stop
        • Discount stores – Subhiksha
        • Pheriwalas
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Service Driven
      • These are the people who facilitate the distribution
        • Transporters and freight forwarders
        • Providers of warehouse space
        • C&F agents
        • 3P Logistics service providers
        • Couriers
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Other formats
      • Multi-level marketing systems – Amway, Modicare, Tupperware, Herbalife
      • Co-operative societies
      • Telephone kiosks
      • TV home shopping
      • Catalogue marketing
      • The internet
      • Exhibitions, fairs and trade shows
      • Data base marketing
      SDM- Ch 9 Tata McGraw Hill Publishing Channel levels…
    • Channel Levels
      • Zero level – if the product or service is provided to the end user directly by the company.
        • Used mostly by companies delivering service like health, education, banking (also known as service channels)
      • One level – consists of one intermediary
      • Two level – consists of two intermediaries and is the most common for FMCG products
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Service Channel
      • Companies establish their own unique channels to deliver services like health, education, banking, insurance etc
        • Hundreds of bank branches to be close to prospects
        • Banks may also recruit independent agents to get customers to walk in
        • Consulting or IT firm uses one team for Biz Development and another for execution
        • Musician or magician may use mass media, events or web sites to reach customers
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Channel Levels SDM- Ch 9 Tata McGraw Hill Publishing Manufacturer Manufacturer Manufacturer End User Retailer End User Retailer End User Distributor/ wholesaler Zero level Two level One level Summarize Expectations…
    • Key Learnings
      • Marketing channels are responsible for flows – physical possession, title, payments, information and promotion covered by forward, backward and flows both ways
      • Each channel partner has a different role in supporting customer service through suitable channel flows
      • Number of categories operating in a channel system define the channel levels as one, two etc
      SDM- Ch 9 Tata McGraw Hill Publishing
    • Key Learnings
      • Channel system deliverables are: bulk breaking, place utility, reduced waiting time, providing assortment, financial help, installation and after sales support.
      • Customer service has to be done at optimum cost
      • Marketing channel systems are categorised as vertical, horizontal and multi-channel depending on the structure and the functionality
      SDM- Ch 9 Tata McGraw Hill Publishing